(Bloomberg) -- Zimbabwe, in its latest bid to end the serial slide of the local dollar, has replaced it with a new unit called the ZiG backed by a basket of foreign currency and gold.

Central Bank Governor John Mushayavanhu told a press conference in Harare, the capital, on Friday, that the ZiG — short for Zimbabwe Gold — would be launched on April 8 at an introductory level of 13.56 per dollar and a new interest rate set at 20%.

That compares with the 130% on the old unit, which was the highest central bank rate in the world. Banks will immediately convert current Zimbabwean dollar balances into ZiG, he said.

No Printing Press

“We want a solid and stable national currency in this country,” he said. “It does not help to print money. Certainly under my watch it is not going to happen.”

The sweeping move is Zimbabwe’s sixth attempt to have a functional local currency since 2008, when inflation crossed 500 billion percent, according to International Monetary Fund estimates, rendering it worthless.

To foster demand for the ZiG, Zimbabwe will make it mandatory for companies to settle at least 50% of their tax obligations via the new unit, the central bank said.

Worst Performing

The current Zimbabwean dollar has lost four-fifths of its value on the official market since the start of the year, making it the world’s second worst-performing currency. 

The plunging currency has led to more than 80% of transactions being done in dollars and inflation quickening to 55.3% in March from 47.6% the prior month.

The currency changes are expected to cool annual inflation to between 2% and 5% by year-end and monthly to below 1%, the governor said.

President Emmerson Mnangagwa first hinted in February that his government will introduce a “structured currency.” The plan was delayed to give final touches.

Mushayavanhu, who took over as central bank governor on March 28 — a month earlier than the initial start date — pledged a return to more orthodox monetary policies.

“We are not going to be involved in any quasi-fiscal activities,” he said. “I have no intention to do other people’s jobs.”

To rebuild public confidence, the ZiG will be fully backed by a combination of gold and other precious metals, plus foreign currency reserves held at the central bank. 

In a supporting document to explain the changes, it said that reserves currently include $100 million in cash and 2,522 kilograms of gold worth $185 million.

“The total amount of gold and cash reserve holdings of US$285 million represents more than 3 times cover for the ZiG currency being issued,” it said in the statement.

--With assistance from Paul Richardson and Mike Cohen.

(Updates with more details from central bank’s monetary policy statement in final three paragraphs.)

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